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Why Upstart Started Out Strong While Lordstown Stalled Thursday

By Dan Caplinger - Updated Mar 18, 2021 at 10:29AM

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Jittery investors have markets moving in different directions.

The stock market has been on edge over the past month. Investors are split between optimism about the likely path of the U.S. economy as the COVID-19 pandemic comes closer to being under control and worries that the Federal Reserve and the U.S. government might lose control of the economy and allow it to overheat. Overall, market participants liked what that mix meant for old-economy stocks, helping the Dow Jones Industrial Average (^DJI 0.03%) to hold up relatively well. Other indexes weren't as lucky. As of 9:45 a.m. EDT, the Dow was up 64 points to 33,079. However, the S&P 500 (^GSPC 0.01%) had fallen 21 points to 3,953, and the Nasdaq Composite (^IXIC -0.30%) had dropped 211 points to 13,314.

Individual stocks saw the same variability in their respective moves. Next-generation lending company Upstart Holdings (UPST -13.34%) vaulted higher after its latest financial report and news of an acquisition, but Lordstown Motors (RIDE -9.36%) drew less favorable scrutiny in the wake of its earnings release.

Lordstown Endurance electric pickup truck.

Image source: Lordstown Motors.

Start it up

Shares of Upstart Holdings soared more than 50% higher on Thursday morning. The provider of a new lending platform powered by artificial intelligence told investors what they wanted to hear in its fourth-quarter financial report late Wednesday.

Upstart saw revenue rise 39% from year-ago levels, with lending volume jumping 57% to nearly 123,400. More customers who requested rate quotes from Upstart actually followed through by getting loans on the platform. For the full year 2020, adjusted earnings of $0.23 per share reversed a loss in 2019.

What's truly impressive, though, is that Upstart has huge aspirations for 2021. The company expects revenue to come in more than double 2020's figures, and first-quarter 2021 earnings should keep moving sequentially higher. A lot of that growth will come from Upstart's just-announced acquisition of Prodigy Software, which will allow Upstart to move more quickly into offering auto loans.

Upstart's value proposition involves using AI to come up with more reliable underwriting metrics that enable it to make smarter lending decisions. Time will tell whether Upstart's model passes the test, but so far, investors like what they see.

Riding lower

Meanwhile, shares of Lordstown Motors opened down about 9%. The electric vehicle company has generated a lot of attention, but its fourth-quarter report and outlook didn't satisfy its shareholders.

Lordstown isn't yet generating any revenue, so it's not surprising to see the would-be automaker's losses widen dramatically as it gears up toward production. Lordstown lost $38 million in the fourth quarter of 2020, up from just $7 million in the same period for 2019. That brought total losses for 2020 to more than $100 million.

On the positive side, the company said interest in the Lordstown Endurance electric pickup remains robust, and it still anticipates starting production this September. That aimed to rebut allegations made in a short-seller report recently that suggested Lordstown's business model was flawed.

However, it's going to take about $250 million to $275 million in capital spending in 2021 to get Lordstown to the point at which it can produce 60,000 vehicles per year and make progress toward an electric van as a second potential vehicle in its lineup.

Investors also weren't excited that Lordstown got a request for information from the SEC regarding the short-seller allegations. With so much competition in the EV space, companies can't afford to generate negative publicity, and that seems to be a big fear among Lordstown shareholders today.

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Stocks Mentioned

Upstart Holdings, Inc. Stock Quote
Upstart Holdings, Inc.
$44.70 (-13.34%) $-6.88
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,261.90 (0.03%) $8.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,901.36 (0.01%) $0.57
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,354.62 (-0.30%) $-33.88
Lordstown Motors Corp. Stock Quote
Lordstown Motors Corp.
$2.13 (-9.36%) $0.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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